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Industrial Real-Estate in Ciudad Juarez -TecmaTalk with Andres Sandoval

Industrial Real-Estate in Ciudad Juarez -TecmaTalk with Andres Sandoval

Andres Sandoval of CB Richard Ellis has expertise is in the area of industrial real-estate in Ciudad Juarez, Mexico.

The industrial real-estate market in Ciudad Juarez is the largest along the U.S.- Mexico border.  Andres Sandoval, a vice president at CB Richard Ellis‘ El Paso – Ciudad Juarez office, speaks to the Tecma Group about current market conditions, as well as what he expects to see in 2014.  If you have an interest in the borderland’s most vibrant economy, this is a must listen podcast for you.

The Tecma Group:

Hello and welcome to another installation in a continuing series of TecmaTalk Podcasts. We are glad you decided to listen in. Today we have the good fortune and privilege of having with us Andres Sandoval. Andres is the vice-president at CB Richard Ellis. His expertise is in the area of industrial real-estate in Ciudad Juarez, Mexico. He’ll tell us a lot about the topic over the course of the conversation, and maybe a little bit about El Paso, because, obviously, it’s the sister the city across the border. Thank you for joining us today Andres, how are you?

Andres Sandoval:

Hello Steve, thank you very much, I’m very happy to be joining you for this TecmaTalk Podcast.

The Tecma Group:

Well, you know that I hope we have you as a guest more than once over the years that we do these. Today, however we’d like to start off by asking if you can tell us a little bit about yourself, and,perhaps, something about company you represent as well.

Andres Sandoval:

Yes perfect, Steve. I am currently with CBRE, I joined CBRE about a year and a half ago, but I’ve been doing industrial real-estate in Ciudad Juarez and in northern Mexico for about 18 years now.

The Tecma Group:

That’s quite a bit of time. Are there any details which you can provide about your company CB Richard Ellis, that the audience might find to be interesting or something that sets it apart from others that do the same thing.

Andres Sandoval:

Yes, and that’s one of the main reasons that I joined CBRE a year and a half ago. CBRE is one of the world’s most reputable and largest commercial real-estate firms. We truly have a presence all over the world, so we can work with customers in the US, in Europe, in Mexico, in Latin America, and in Asia. It’s truly a global platform, and I’m very privileged to be part of CBRE.

The Tecma Group:

That sounds great. Today why don’t we start off by you informing us with respect to general information concerning industrial real – estate in Ciudad Juarez (the market and availability) Lets just say kind of a “macro” overview, if you would please.

Andres Sandoval:

Perfect. Yes, we can start with general information, and then we can get down to specifics about the industrial real state market. But to start Ciudad Juarez, is the largest industrial real-estate market on the Mexico border. The size of the industrial market in Juarez is about 60.6 million square feet. Now, Juarez is of course a border city, with El Paso, Texas, and El Paso’s industrial market is about 54 million square feet. So if you look at both markets combined, we have about 120 million square feet of industrial space, and typically manufacturing companies set up in the Mexican side, while distribution and logistics companies set up on the Texas side of the border in the US. Ciudad Juarez also, to give you a little bit of background, is condidered by some people to be the birthplace of the maquiladora industry back in the late 1960’s. Today we have a very diversified group of manufacturing companies in Juarez. We have representation in sectors from automotive with companies such as Delphi, Lear, Johnson Controls, Visteon. Those are companies that are, of course, from the US.

We also have Yasaki and Sumitomo from Japan, and a couple of European companies as well, such as Robert Bosch and Automotive Lighting. That’s in the automotive sector which is very important in this city. We also have an important group of companies in the medical device manufacturing in Mexico business such as Cardinal Health and Johnson & Johnson. In the appliance sector we have a huge presence of Electrolux, the Swedish company. We also have a very significant presence of electronics companies in Ciudad Juarez. There are companies that are manufacturing TV’s and computers such as Foxconn, Lexmark, Tatung, Wistrom. So the industrial real-estate market in Ciudad Juarez is a quite diversified one.

Tecma Group:

That’s interesting. In the brief discussion that we had prior to this session you had mentioned that in comparison to the period of 2008-2012 things are starting to look a little bit different. What’s happening now on the border at Ciudad Juarez?

Andres Sandoval:

Well the level of activity we are seeing today is basically what we were seeing in pre-recession years. In 2013, the market has been extremely active, and I will get into some of the details on that topic. An important number, the most recent number of maquiladora employment as published by the maquiladora association is two hundred and twenty-eight thousand workers. This number has been increasing every quarter for the past, I believe 8 or 10, quarters. So the economy is definitely improving. Of course the violence has subsided a lot. These two factors are really helping the local economy. We area beginning to see very solid gains. In industrial real estate, we track absorption. We are looking at very good absorption numbers these days in the market for industrial real-estate in Ciudad Juarez.

The Tecma Group:

So when you talk about things, you go from the macro to where we are in a conversation at this point. Macro being obviously industrial real estate in terms of the market size here on the border in Ciudad Juarez. Things look better today in 2013 than they have since 2008, so that’s positive. With regard to getting down to some real specifics, you just mentioned the term absorption. Can you tell us a little about what kind of absorption is happening in the industrial real-estate market in Ciudad Juarez at present? Can you also please provide any information about the movement in the different types of classes of buildings that exist?

Andres Sandoval:

Yes, we basically track absorption, and, of course, the other factors which are very important. Other items that we can discuss in a minute are vacancy and lease rates. To give you an idea, in 2013, we have had a gross absorption of industrial space of 3.8 million square feet. Now, the way we track absorption is we measure gross absorption, then we also measure net absorption. We basically look at spaces that are absorbed, and then deduct spaces that are vacated. In 2013, as of September, we have 1.8 million square feet of net absorption, compared to basically zero net absorption in 2012. In 2012, we also had a very good gross absorption number of 3.9 million square but the net absorption was zero. What you have in a healthy industrial real-estate market is net absorption. On a positive note we are beginning to see very good numbers in net absorption.

The Tecma Group:
When you talk about gross absorption and you have zero net, that is a situation in which your basically refilling empty space. Would that be correct?

Andres Sandoval:

That’s correct. In 2012 we had 3.9 million square feet of gross absorption and basically the same number of feet vacated, which resulted in a net absorption rate of zero. One of the local developers described the 2012 as a market that was made up of grasshoppers jumping from one building to the other one without any net absorption. But of course now we are beginning to see very good net absorption numbers in the industrial real-estate market in Ciudad Juarez.

The Tecma Group:

I would assume that most of these, when we talk about net absorption, in terms of percentage has come mostly in the form of leased space. Has there, however, been any build to suit activity by manufacturers that have entered the industrial real-estate market in Ciudad Juarez? Can you provide any insight into this?

Andres Sandoval:

Yes, most of the activity has taken place in the existing buildings. There has been one important build to suit project with a company named Luvata in the AeroJuarez Industrial Park. But most of the activity has been taken place in existing inventory. In a moment, I will go over information on vacancy and vacancy percentages, because of course as these buildings have been absorbed and are been absorbed we‘re seen vacancy numbers decrease at a very interesting pace. In 2009, 2010, and 2011 the vacancy in industrial real-estate in Ciudad Juarez hit a historical high number of fifteen percent. Of course, that means that fifteen percent of the market size was vacant at the time. Today we are tracking a vacancy percentage of 10.9 percent. We’ve seen a very important decrease in vacancy in 2013 over 2012.

Tecma Group:

So this year you have seen a decrease of industrial real-estate vacancy in Ciudad Juarez break eleven percent?
Andres Sandoval:

Yes, that is correct.

Gross absorption in 2012, and year to date 2013 as we mentioned, is about 7.7 million square feet. Fifty five percent of that or about 4.3 million square feet are comprised of Class A buildings. These are the best buildings in the market. Thirty-eight percent of vacancies are Class B buildings, and only seven percent are Class C buildings. These are the older and more obsolete spaces. So, definitely the A and B spaces have been absorbed. Now, as regards vacancy today in rough numbers, there is about 2 million square feet of vacant A space and about 3 and a half million feet of vacant B space. These are the spaces that are being absorbed rapidly. On a positive note, I think we will begin seeing soon, maybe as early as the fourth quarter of this year or in the first quarters of 2014, is the construction of new speculative space or inventory construction from the development community. Once vacancy rates go down further, developers will begin to add to the industrial real-estate market in Ciudad Juarez.

The Tecma Group:

You’ve kind of walked a little bit into my next question. You touched upon the idea of trend a in new construciton next year. Are any other kind trend statements that you can make as regards the rest of this year and 2014?

Andres Sandoval:

Yes, a couple of interesting trends may be developing in the industrial real-estate market in Ciudad Juarez. I think the activity will continue. I think the absorption of A & B spaces will continue, and I think the developers will begin construction of new space that will be Class A. Another interesting trend that we have seen recently is that the larger spaces are the ones that have been absorbed, and there have been very large projects in the market recently. One of them is was a company that manufactures trailers. The firm leased a three hundred and sixty thousand square foot building. This is very interesting, because if we look at the vacancy rate today, there is roughly two million square feet of Class A building space available. There are only six buildings larger than one hundred thousand square feet on the market. Of the other spaces, sixteen buildings are smaller than one hundred thousand square feet, and the demand that we have lately is for larger spaces. Another interesting fact that I want to mention is that we track the pipeline of deals in the market, and, of course, these are companies that are looking for space that have not signed a lease or a purchase agreement. We are tracking a three million square foot pipeline for the industrial real-estate market in Ciudad Juarez in the month of September.

The Tecma Group:

That’s wonderful. I mean if you get a third of that amount things are looking pretty good. So as far as trends are concerned, that’s about were things stand. Do you have anything else to add?

Andres Sandoval:

Well we didn’t touch on lease rates. Of course industrial real-estate in Ciudad Juarez, like most good and services, is a function of supply and demand. What will happen is that as vacancies decrease lease rates will return to pre-recession levels. Today to give you an idea, asking lease rates for Class A spaces are in the $4.25 to $4.80 per square foot per year range. I think that as those Class A spaces are absorbed, lease rates will increase. Again, that’s just basically driven by supply and demand economics.

Tecma Group:

At this point there’s an awful lot we can talk about still, but I think we’ve covered a lot of ground in this fairly short period of time. I would imagine that somebody or maybe more than one person who is listening to this TecmaTalk Podcast, might have questions that haven’t been addressed here. Is there somehow that individuals that want to get in contact with you can do so?

Andres Sandoval:

Perfect of course Steve; yes, I will give you my direct telephone number and also my e-mail. My direct number is 915-313-8802 and my e-mail is Andres.Sandoval@CBRE.com ,and,of course, I will be happy to answer any questions.

Tecma Group:

Andres Sandoval from CB Richard Ellis, I want to thank you for joining us for this installation of TecmaTalk. I’m sure that we’ll have another update on industrial real-estate in Ciudad Juarez from time to time. So thank you very much for filling us in.

Photo credit: mugley

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